Monday, October 15, 2012

The
Budget Control Act of 2011 (BCA; P.L. 112-25) established new budget
enforcement mechanisms for reducing the federal deficit by at least $2.1
trillion over the 10-year period FY2012-FY2021. The BCA placed statutory
limits, or caps, on discretionary spending for each of those 10 fiscal
years, which will save an estimated $0.9 trillion during that period. In
addition, it created a Joint Select Committee on Deficit Reduction (Joint
Committee) with instructions to develop legislation to reduce the federal
deficit by at least another $1.5 trillion through FY2021. On November 21,
2011, the Joint Committee announced that it was unable to agree on a legislative
package of deficit cuts, which raises the likelihood of automatic annual
spending reductions beginning in FY2013. Under the BCA, the reductions
would be achieved by a combination of sequestration—an automatic
across-the-board cancellation of budgetary resources (i.e., spending cuts)
for nonexempt direct spending programs—and lowering the caps on discretionary
spending.

The potential impact of spending reductions triggered by the BCA on health
reform spending under the Patient Protection and Affordable Care Act (ACA)
would appear to be somewhat limited. ACA sought to increase access to
affordable health insurance by expanding the Medicaid program and by
restructuring the private health insurance market. It set minimum standards for private
insurance coverage, created a mandate for most U.S. residents to obtain
coverage, and provided for the establishment by 2014 of state-based insurance
exchanges for the purchase of health insurance. Certain individuals and
families will be able to receive federal subsidies to reduce the cost of
purchasing coverage through the exchanges. The new law included direct spending
to subsidize the purchase of health insurance coverage through the exchanges,
as well as increased outlays for the Medicaid expansion. Under the rules
governing sequestration, Medicaid spending would be exempt from any
reduction, and cuts to Medicare would be capped at 2%.

ACA also included numerous mandatory appropriations that provide billions of
dollars to support temporary programs to increase coverage and funding for
targeted groups, provide funds to states to plan and establish exchanges,
and support many other research and demonstration programs and activities.
These appropriations would, in general, be subject to direct spending
reductions under a sequestration order. However, for any given fiscal year
in which sequestration was ordered, only new budget authority for that
year (including advance appropriations that first become available for
obligation in that year) would be reduced. Unobligated balances carried over
from previous fiscal years would be exempt from sequestration.

ACA is likely to affect discretionary spending subject to the annual
appropriations process. The law reauthorized appropriations for numerous
existing discretionary grant programs and activities authorized under the
Public Health Service Act, permanently reauthorized funding for the Indian Health
Service (IHS), and created a number of new grant programs and provided for each
an authorization of appropriations. In addition, the Congressional Budget
Office projected that both the Department of Health and Human Services and
the Internal Revenue Service will incur substantial administrative costs
to implement the policies and programs established by ACA. Those costs
will have to be funded largely through the annual appropriations process.
ACArelated discretionary spending would, in general, be subject to
automatic spending reductions triggered by the BCA.

Date of Report: October 1, 2012
Number of Pages: 23 Order Number: R42051Price: $29.95

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